Reliance says Jio to turn profitable 'shortly'

Low prices have helped Jio net 138.6 million users, consolidating its position as the fourth largest telcoET Bureau | October 14, 2017, 08:39 IST

Reliance Jio Infocomm posted a net loss of Rs 270.59 crore for the quarter ended September on revenues of Rs 6,147 crore and surprised the market by reporting a positive earnings before interest and tax (EBIT), helped by strong user additions and cost efficiencies.

This is the first time the Mukesh Ambani-owned company has declared earnings since starting operations in September last year. V Srikanth, joint CFO of RIL, told reporters the new entrant expects to turn profitable at the net level “very shortly”, with average revenue per user (ARPU) — a key performance parameter — likely to improve as the new entrant raises its rates going forward and Jio continues to leverage its cost advantages due to investments in 4G technology.

Jio’s ARPU stood at Rs 156.4 compared with Rs 154 that market leader Bharti Airtel recorded in the April-June period, a fact which surprised some analysts. Airtel will report its September quarter results on October 31.

Low prices have helped Jio net 138.6 million users, consolidating its position as the fourth largest telco. Of these, 15.3 million were net additions in the just-ended quarter with only 1% of users moving to another network, a migration that’s expected to slow, Jio said. Active users numbered 107 million.

Total wireless data traffic in the quarter was 3.78 billion GB, far higher than its more established rivals such as Bharti Airtel, while average voice traffic was 2.67 billion minutes per day. The company said it recorded the “highest per capita data consumption at 9.62 GB/user/month” and “the highest per capita voice consumption at 626 minutes per month” along with 1.78 billion hours of high-speed video consumption a month.

“The rapid uptake of Jio services reflects the latent need of the society,” RIL chairman Ambani said in a release. “The strong financial results of Jio demonstrates the robust business model of Jio and the significant efficiencies that the company has built through its investment in the latest 4G technology and right business strategy.”

EBITDA MARGIN OF 23.5%The company’s earnings before interest, tax, depreciation and amortisation (EBITDA) was Rs 1,443 crore in June-September period, with an EBITDA margin of 23.5%, while EBIT was at Rs 260 crore with the EBIT margin at 4.2%.

“Positive EBIT in the first quarter of commercial operations, given tremendous uptake by subscribers and cost advantages generated through use of efficient 4G technology,” the company said.

Srikanth said many had been “sceptical” about how Jio would fare but the “network helps you deliver these kind of numbers”. Jio’s September quarter network operating costs were Rs 1,371.89 crore, licence and spectrum charges were Rs 399 crore, staff benefit costs were Rs 303.10 crore and interest costs Rs673.38 crore.

Debt stood at Rs 49,000 crore, on an equity base of Rs 90,000 crore, and the company needs to make Rs 22,000 crore of payments to the government for spectrum over a period of time. RIL has so far invested Rs 1.45 lakh crore in Jio, of which Rs 62,000 crore is work in progress.

The company recorded capex of Rs 7,000 crore in the September quarter and that will remain in the same range in the next few quarters as well, said Anshuman Thakur, head of strategy and planning at Jio.

Depreciation and amortisation expenses were at Rs 1,183.88 crore and selling and distribution costs at Rs 260.84 crore.

“These numbers would positively surprise any expert. From a challenger perspective to have these numbers on debut is a record of sorts. This will put further pressure on incumbents,” said Sanjay Kapoor, a former chief executive of Bharti Airtel’s India operations.

“This ARPU also means that Jio does not have low-end customers. They have smartphone customers and not the feature phone customers yet,” he added.

‘BAFFLING NUMBERS’However, not all analysts were as convinced about the numbers. Sanjiv Bhasin, executive V-P, markets and corporate affairs, at brokerage IIFL, expressed surprise.

“The results are a bit too flattering. Airtel in its prime had an ARPU of (Rs) 170 and Jio in first results has over (Rs) 156 ARPU and just Rs 260-odd crore loss. The numbers are baffling,” he said. Thakur said most of Jio’s users have subscribed to its Rs 399 plan and very few have taken up the Rs 149 plan.

Mritunjay Kapur, partner, KPMG India, said with data “picking up momentum, we can expect higher growth in revenue in coming quarters”.

After a rapid start when Jio hit a record 100 million users in 170 days, the pace of subscriber additions has slowed as it began charging for data — albeit at sharply lower rates than others — from April and due to the limited number of 4G smartphones in the market.

The company is now targeting 500 million feature phone users through Reliance Retail’s JioPhone, which is a 4G featurephone bundled with a Jio SIM. The phone has been pre-booked by 6 million users who will receive delivery by end of October. The company will then restart pre-bookings for the next lot of JioPhones that are being made locally, said Sunil Dutt, head of sales and distribution for devices at Reliance Retail. Thakur added that a new tariff plan was around the corner to push subscriber additions.

Jio is targetting 50% of revenue market share in the next few years and offered the mass-market phone effectively ‘free’ with a down payment of Rs 1,500 that’s refundable after three years.